The Overnight Report: Obvious Relief

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By Greg Peel

All Eyes Abroad

Nothing worse than having a hangover while needing to have one’s eyes glued to the screens to watch a slow-moving election count, but that was the case in the local market yesterday. No point in taking risks at that stage, but best to stay on top of it.

As it was, by the close of trade yesterday it appeared clear the Republicans would retain the Senate but the House result was still too close to call. The Dow futures were up 75 points, which is neither here nor there. On that basis the local market could do little more than respond to local developments on the day.

Key among those was a quarterly trading update from Commonwealth Bank ((CBA)), which wrapped up the bank earnings season by maintaining the theme of “not too bad”. CBA shares rallied 0.6% and the financials sector gained 0.6%, despite AMP ((AMP)) falling -2.2% as BlackRock abandoned the wealth manager, or whatever it calls itself now.

AMP no longer has that much clout in index points. It began the year as a Top 20 ASX stock.

The big miners were down a bit yesterday on a fall in the iron ore price that wasn’t particularly substantial given the steady rally of past weeks, and base metal prices that have continued to sag in line with the Chinese economy. But if you’re into batteries, yesterday was another good day.

Graphite producer Syrah Resources ((SYR)) signed an offtake agreement effective immediately and its shares jumped 8.7%. There’s no holding back the lithium miners at the moment – Kidman Resources ((KDR)) rose 9.7%, Orocobre ((ORE)) 6.0% and Galaxy Resources ((GXL)) 5.3%. Miner of nickel, cobalt and scandium, and water and metal purifier CleanTeq ((CLQ)) rose 15.5%.

If we look at the list of most shorted stocks on the ASX as of last week, we find Orocobre 16%, Galaxy 16%, Syrah 15%, Kidman 7% and CleanTeq 5%.

There is takeover talk swirling around wind/solar farmer Infigen Energy ((IFN)). Not that surprising given the acceleration in Australian household/business take-up of solar installation in response to the government’s energy policy of not having one. Infigen jumped 11.8% yesterday.

Oil services company WorleyParsons ((WOR)) jumped 10.4% on the news major shareholder Dar Group, which initially shied away from the big rights issue, has decided to come on board.

Elsewhere other sector moves worth noting were IT (+1.3%) as its tenuous comeback continues (tagged to the Nasdaq) and telcos (+0.8%) because the coin came up heads.

Trump Claims Victory

We recall that as America turned up to vote on Tuesday night, in significant number, the expected outcome was the Democrats would win back the House and the Republicans would hold the Senate, and on that result Wall Street would do little as this was already priced in.

If the Republicans retained both Houses, which was a possibility, Wall Street would be off to the races, and if the Democrats won both houses, which was considered very unlikely, Wall Street would crash.

America didn’t have to wait too long to learn that the outcome they had expected indeed came to pass. Yet the Dow rallied 545 points. That wasn’t in the script.

The Democrats were hoping for a sizeable majority of House seats, but ended up with something less. The Republicans were praying they could hold onto the Senate, but actually increased their majority. (This would be akin to Australians voting Labor in House and Liberal in the Senate, which seems ridiculous to us, but perhaps the US Congress comes down more to local personalities and policies.)

Had the Democrats won a big majority in the House and only hung on to the Senate by a whisker, this would be a very negative signal for the next presidential election, with regard a second term. This is why, it is assumed, Wall Street’s reaction was so positive when it was assumed a split Congress was already baked in.

And in terms of relief, I’m sure everyone’s glad the most highly anticipated midterms in decades are finally done and dusted. Now we can move on.

Around mid-afternoon it was announced Trump had dumped his Attorney General, Jeff Sessions. While this had been expected for months, the timing is interesting. Before the Democrats can get themselves organised in the House, will Trump now try to shut down the Russian investigation?

Wall Street shrugged at the news. It just kept going up in a straight line all night.

I think we can now safely say a bottom has been seen in the correction, for the time being. Santa’s out oiling up the sleigh. But ahead lies Trump’s meeting with Xi at the G20.

Commodities

US weekly oil data once again showed a build-up of inventories and increased daily US production. When Trump announced a timetable for renewed sanctions on Iran, Saudi Arabia and Russia upped their production to balance out assumed lost Iranian barrels. But exemptions to the sanctions mean those barrels won’t be lost any time soon, and steadily increasing US production is already balancing the equation.

That’s why WTI is at an eight month low.

Not much else to report in commodity markets last night.

The Aussie has shot up 0.9% to US$0.7283, mostly overnight, with the greenback down -0.3%. They’re still playing it short, it appears.

Today

The SPI Overnight closed up 42 points or 0.7%. Remember that “call option” I spoke of yesterday?

China will release October trade numbers today.

Wall Street’s focus now turns to the Fed statement due tonight.

Locally, earnings results are due today from EclipX ((ECX)), James Hardie ((JHX)) and Pendal Group ((PDL)).

BHP ((BHP)), Flight Centre ((FLT)) and Sims Metal Management ((SGM)) are among those companies holding AGMs.

Note that National Bank ((NAB)) goes ex-dividend this morning.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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